USD struggles in prolonged slump, but analysts see brighter ...

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13-08-2025 10:54

USD struggles in prolonged slump, but analysts see brighter days ahead

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USD struggles in prolonged slump, but analysts see brighter days ahead

The US currency is in a slump. Analysts observe that the gloomy spell for the dollar shows no sign of ending, with recovery attempts proving unconvincing. Yet optimism is not lost. Currency strategists at Capital Economics believe the greenback is poised for a rebound that could come true before year-end. The mood is lifted by easing uncertainty over tariffs and an interest rate differential tilting in favor of the United States.

Capital Economics suggested that the dollar’s early-2025 weakness may have been influenced by a rapid reassessment of the US economic and financial outlook amid unusually volatile policy changes, with global trade tensions likely adding to the pressure. However, with tariffs being addressed and expectations that the Federal Reserve will maintain its key rate, the link between rate differentials and exchange rates should be restored, helping the dollar gain ground, the firm added.

The Trump administration’s unconventional political approach has undermined the perception of the US as a safe haven and clouded dollar assessments, Capital Economics argued. Yet market participants have gradually become less reactive to administration rhetoric, as actual White House policy has typically been less radical than initially feared, the firm pointed out.

According to analysts, reduced tariff uncertainty, combined with steady US economic growth and strong equity market performance, should support a moderate USD recovery. Additional backing may come from the Federal Open Market Committee (FOMC). Capital Economics doubts the Fed will cut rates as sharply as markets anticipate, as tariff-driven inflation limits the easing cycle.

The firm expects that rising price pressures from tariffs will make policymakers wary of overly aggressive monetary loosening. That said, a marked US economic slowdown or only modest inflation growth could strengthen the FOMC’s dovish stance. “This would prompt the Fed into deeper cuts, forcing the dollar to backpedal,” Capital Economics concluded.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

Forex humour